It is not only seasoned investors but also youngsters from small towns and cities who are inquisitive about cryptocurrencies. The extraordinary returns have made virtual tokens increasingly popular as a new investment avenue. Consider this: Bitcoin, the oldest and largest virtual token, has given a return of 91 per cent since the start of this year. It is currently trading at $56,116.77. Similarly, Dogecoin, a new-age meme coin, has given as high as 3785 per cent return since the start of 2021.
Lured by such high returns many people tend to fall for wrong schemes and coins in the chase to make quick bucks. A recent example has been the case of Squid Game crypto, which plunged to $0 after its founders cashed out. The coin was launched after the popular South Korean Netflix series "Squid Game." However, as an investor, you have to be sure about the project and also critically examine whether there is a use case before jumping to invest in such coins.
For the uninitiated here are a few things they should be aware of before entering into the complex and highly volatile world of cryptocurrencies:
Cloned tokens: There are around 10,000 crypto coins listed in the global crypto exchanges. While the market cap of the top 10 coins constitute the bulk of the market cap, many people tend to fall for smaller coins thinking they have already missed the opportunity to invest in big cryptos. Without any knowledge of the project often people tend to fall for similar names which have been designed to scam the potential investor. "Scammers create clones of well-known coins. Let's say you have Bitcoin, tomorrow if someone creates a coin with a similar name then users might get attracted thinking it is something relating to Bitcoin. It happens often when you pick something, which is in the limelight," said Shashi Jha, Head of Compliance and Legal, WazirX.
Is there any filtration of such coins at the exchange level? Jha added, "As an exchange, we try to educate our customers in investing in a limited set of cryptocurrencies which are listed. It starts from filtering at the listing stage itself wherein we allow only a certain number of currencies to be traded. There are around 10,000 listed on global exchanges but we have close to 200 currencies. We do due diligence on those projects and if we are comfortable then only we allow those."
Social media groups: There are many social media groups on Facebook, Telegram and WhatsApp that try to attract people by giving offers to double their coins. One should be very careful of such groups. "Through social media channels, they send to a potential investor an opportunity to invest through them. Generally, they offer to give an investor twice the number of coins. Like if you send one they will send two. At times the investor is not very careful and end up sending their cryptos to those scam wallets, then those coins are lost in the blockchain ecosystem. This is the most prevalent scam," said Jha.
MLM schemes: Typically, these scammers approach an investor promising a 15-25 per cent guaranteed return if they invest in a certain cryptocurrency. They ask investors to pay a certain amount of money and add members to their network to earn extra income. As the downline grows, the person is paid a commission on the business done by the members. These kinds of schemes are not possible because of the kind of returns they promise. Most of the time the motive is to make easy money through such pyramid schemes.
Reserve Bank of India (RBI) has time and again issued cautionary notes stating the potential pitfalls of cryptocurrencies. It is always advisable to do your due diligence before investing your hard earned money in any project.
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